Bridging the Crisis:
The New Israel Fund Response to the Economic Crisis

Background

Representing a significant segment of Israel’s GDP, the nation’s NGO sector amounts to more than $20 billion annually and is comprised of thousands of organizations employing about 250,000 people. These organizations serve a central role in representing communities and populations, promoting their civil and human rights and allowing their voices to be heard. They are an important source in the provision of health, welfare and education services, and play a significant role in shaping policies that benefit all the country’s residents.

The Israeli government is currently formulating an emergency economic plan to reduce the expected damage from the global economic crisis. NIF/SHATIL are particularly concerned about the sharp decline in donations to social change organizations, and in this document calls upon the Israeli government to expand the safety net for NGOs and adopt measures that will assist organizations in successfully coping with the crisis.

An active, vital civil society is the foundation of a democratic society and it is imperative to aid these organizations during a time of crisis. Government assistance is not a substitute for comprehensive efforts by the NGO sector to become more efficient, but assistance is critically important in preventing the wholesale collapse of many organizations upon which much of the country depends for representation and services.

The rescue package proposed by the government for Israel’s business and financial sector will not help Israel’s social change organizations. Without such assistance, the NGO sector will experience significant layoffs and the collapse of civil infrastructures that will take many years and much funding to rebuild.

The following details central measures that NIF/SHATIL consider crucial as part of an emergency plan and include administrative and budgetary steps on both a local and national level. Some of the proposals can be swiftly approved through immediate decisions, and cancelled if the situation returns to normal. These are the principle measures proposed:

Emergency Assistance Fund for Employment 

• Setting up a $40 million Emergency Assistance Fund: The Fund will disburse grants and/or bridging loans for struggling organizations or, alternatively, put up state guarantees for organizations that have requested bank loans. Setting up such a fund is of immediate need, before many organizations reach the point of no return. The government, which approved the establishment of similar funds for assisting the financial and business sector, has already established the logic of setting up such emergency funds.
• Launching Assistance and Support Tracks for Employment in the NGO Sector: The economic stimulus package that was approved by the Israeli government included a provision granting assistance to employers who want to recruit new employees or prevent layoffs during the economic crisis. As leaders of a sector which employs 10 percent of the country’s workforce, we call for similar support and assistance tracks for employment in civil society organizations, thus protecting thousands of workers from unemployment.

Adapting Tax Policies and Encouraging Donors and Donations

• Lowering Salary Tax from 7.5 percent to 4 percent: Salary taxes are imposed on NGOs alone and represent a significant expense. This is a tax on employees and their work and it is only proper that it should be reduced during the current period. The incentive for such a measure is twofold: preventing layoffs while saving on unemployment payments. The cost of such a measure would be about $145 million, the revenue for which would be mostly covered by unemployment payments and taxes paid by employees who would remain in their jobs.
• Providing the Possibility of Offsetting NGO Expenses against VAT (Sales Tax) Payments: NGOs are not permitted to offset VAT expenses in the way permitted to the business sector. Offsetting such expenses could be limited by a defined ceiling, depending on the area of activity and the geographical location of the organization. The size of the offset can be determined on the basis of audited financial statements submitted to the authorities.
• Encouraging Donors and Donations: Raising the Tax Benefits Ceiling for Donors, Canceling the Floor and Expediting Tax Recognition for Organizations: In light of the crisis, it is necessary that the government adopt a threefold measure to encourage donors and donations.  This includes: raising the tax benefit ceiling for annual donations to $2.5 million from the current level of $1 million; canceling the “donations floor” required for tax return credits, which today stands at about $90 per year; and creating a fast track for giving tax benefits to donors (clause 46 of Income Tax regulations). The measure could be adopted for a limited period beginning with those organizations that have submitted financial statements according to law for the past two years. Every tax dollar lost will be returned to the state coffers via savings in direct expenses that will be required if organizations providing services in welfare, health, education, housing, the environment and employment cease to exist.

Increasing Budgetary Support, Adapting Expenditure Levels and Preferring Civil Society Organizations

• Increasing the Scale of Government Support for Civil Society Organizations in 2009 by 25 percent and Bringing Forward Dates of Approvals and Transfers: In light of the economic crisis, it is up to the government to enlarge the scope of direct budgetary support for organizations and work to broaden the circle of organizations entitled to that support. The strength of the crisis and the speed with which it is overtaking the NGO sector is making it very difficult for organizations to cope. Increasing available budgetary support – to those organizations that are interested – by about $125 million is a step which is desperately needed.  Expediting approval and the transfer of support funds, which have already been approved by law, is also very important to alleviate the cash-flow problems facing organizations.
• Adjusting the Current Permitted Percentage for Administrative and General Expenditure: The Accountant General limits the ratio of “administrative and general” expenditure allowed to organizations that are interested in support funds and/or contracts for providing services to the public sector. It is proposed that during the crisis, a higher ratio of expenditure be allowed due to decreased income without expenditure increases.
• Implementing Government Decisions for Preferring Civil Society Organizations in Tenders for Providing Social Services and for Reducing the Level of Bank Guarantees: Implementation of the February 24, 2008 government decision instructing the Accountant General to work towards granting preference in government tenders to civil society organizations providing social services must be accelerated. This will allow for an immediate reduction in the level of bank guarantees that organizations are required to deposit in order to participate in these tenders.

Assistance to Organizations at a Local Level

• Enlarging Budgets for Local Support and Assistance Through Infrastructures and Services: Each year local authorities grant budgetary support to organizations. It is proper that the local authorities, which have benefited from the activities of the organizations over the years – should help them. During the crisis they should mobilize to increase the financial support granted to organizations and assist them in additional ways, such as providing buildings for their activities for symbolic fees or reduced rates. Such acts would express recognition for the important contribution that NGOs make to cities and their residents.
• Adapting Municipal Taxes for the Crisis – Lowering or Spreading Out Payments: In many of the municipal authorities, social organizations pay high municipal rates, similar to profit-making businesses. It is proposed that in coordination with the Ministry of Interior, decreased rates be determined. It is possible to scale the reductions according to the activity, scope and geographical location.

Reducing Bureaucracy through Amalgamating and Reducing Reporting, and Streamlining Reporting Requirements

• We call upon the Corporations Authority and other auditory bodies – Tax Authority and the Accountant General – to take immediate steps to reduce the ongoing management activities imposed on NGOs, while maintaining those requirements necessary for quality performance. Among our suggested measures: amalgamating reporting and mutual recognition of the auditing reports of the Accountant General, Tax Authority and Corporations Authority, while streamlining reporting tracks and raising the exemption level to organizations that have annual revenues under $125,000, rather than the present level of $75,000.

Immediate Steps are Required to Save Organizations Before it is Too Late

The proposed measures involve serious costs, but the economic and social contribution is enormous.  We call on the government to quickly enter a dialogue with representatives of NGOs and agree upon details of the plan so that it can be implemented as soon as possible, before it is too late.